Media-Driven High Frequency Trading: Evidence from News Analytics
Bastian Von Beschwitz
INSEAD - Finance
Donald B. Keim
University of Pennsylvania - Wharton School
INSEAD - Finance
October 2, 2013
We investigate whether providers of high frequency media analytics affect the stock market. This question is difficult to answer as the response to news analytics usually cannot be distinguished from the reaction to the news itself. We exploit a unique experiment based on differences in news event classifications between different product releases of a major provider of news analytics for algorithmic traders. Comparing the market reaction to similar news items depending on whether the news has been released to customers or not, we are able to determine the causal effect of news analytics on stock prices, irrespective of the informational content of the news. We show that coverage in news analytics speeds up the market reaction by both increasing the stock price update and the trading volume in the first few seconds after the news event. Such coverage also increases prices if the content of the news is positive. Placebo tests and econometric robustness checks, either based on difference-in-difference specifications or different samples, confirm the results. The fact that a provider of media analytics impacts the market in a separate and distinct way from the underlying information content of the news has important normative implications for the regulatory debate.
Number of Pages in PDF File: 46
Keywords: High Frequency Trading, News Wires, Textual Analysis, Market Reaction
JEL Classification: G10, G12, G14working papers series
Date posted: September 17, 2013 ; Last revised: November 4, 2013
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.282 seconds